Month: October 1995

What brave new world we’ve wrought

For a while now, people at NYU have been wondering when we, like students and staff at other universities, would be able to publish our own web pages.  Well the capability has just arrived.  As of September 14, anyone with an NYU-Internet account (one of those ACF IS/IS2 accounts) can publish web pages that would be available to anyone, anywhere inthe world, who is interested in reading them.  Yet what exactly does this mean?  Is this like hiring out a billboard on 42nd street with red and white lights, is it equivalent to having a page to yourself in the telephone directory, or is it like publishing a book?

Writing pages for the web is perhaps analogous to writing a book, yet not exactly, and as we will see, the web might just change the way we look at publishing itself.  The World Wide Web, like the global computer network we call WorldNet affords possibilities that have never existed before. Never has it been as easy to distribute information to people half-way across the globe, it has never been as easy to engage in discourse with individuals whom one has never met.  And for the first time, anyone with the will to do so and a little spare time can become a publisher.  Though these opportunities exist, one is often unaware of what is to be made of them.  How are we supposed to do this, and why?

Some people write web pages to inform, and many other to entertain. Your homepage is often the only chance you will get to describe yourself to people on the Net, this is where you indulge yourself, write about your dog, your ant-farm, maybe even list your CD collection.  A homepage becomes an extension of your person, the place where people who’ve been conversing with you about the relative merits of non-stick frying pans, as opposed to traditional ones, go when they are curious enough to find out more about you.  And this is also the place to tell people what you’re having for lunch.  There are however, other uses for the web. One can use it to promote a personal political cause, make some writing freely accessible or simply provide information that may be of interest to a group of people.  What is astounding about the Web, and Compter Mediated Communication in general, is that individuals can interact on a scale hitherto unknown.  The Web makes it possible for anyone to utilize the same medium the New York Times or NBC would.  Unlike the sort of pre-packaged, processed entertainment and information we have been become accustomed to with the advent of radio and television, the Web provides us with a variety of sources that is in itself astounding.  It is no longer necessary to “believe everything you read in the paper”, or see on television for that matter, you can simply find out from someone who is close enough to know about the details.  And if you have the inclination, you can be the person who informs the Net community about a particular issue.

In a sense this is a move back to the times when people in a particular community actually gathered together every evening to exchange news and  talk about it.  The idea remains the same, but the community has enlarged to embrace a large part of the world.  The standards by which we judge what is worth paying attention to however haven’t changed. Though any web page is ostensibly available to anyone and everyone in the world who has access to the web, it’s unlikely that everyone on the Net is going to visit the page.

Unless, there’s something of interest there.  The web has the power to create a new media, one that is fed by individuals with personal concerns, not by large institutions.  Yet, if this capability is to come into its own every individual has to work towards realizing it.  The competition has never been fiercer yet never has the market for information been as open.  The probability that the web may become another distribution network for packaged media runs very high.  We only have a commercial media today because the costs of providing accurate information have always been very high (and will remain high for the forseeable future), this is especially true of the news media.  “The Press” has evolved because it is virtually impossible for individuals to provide the sort of coverage the press can without formalizing the relationship between the consumer and the producer.  Yet this is just the tip of the iceberg. After the large newspapers, wire services and cable networks come the fringe media.  A mosaic of ‘zines, pamphletes, newsletters and grafitti this discourse is sustained by a community of “information providers” who can touch upon topics that the increasingly national and international media cannot.  It is this group of people, call them activists, idealists, or even fetishists if you will, who will dress the web in its finest.  Yet this will hardly happen if we fail to provide the thread out of which this quilt is woven, or the eyes with which to appreciate the dedication of the maker.  The web is perhaps the closest analogy we have for the sum total of human knowledge (the only problem is that the majority of material on the web is in English).  We have in the web a continuously evolving structure of closely/loosely bound documents that are being revised by many people at the same time, that create a space for us to exchange ideas and thoughts.  The web contains both the ephemeral (individual discussion and maybe even IRC), the semi permanent records of our interests (web documents) and even a little of the virtually permanent (the classic web documents that will remain as reminders of what was).  This is nothing but an outline for the sort of interaction that has been occuring amongst individuals for aeons in one guise or another.  The only way to assure that the web evolves into such an entity is to place your own mind up there to be seen and wondered at.  This has always been true for writers and speakers who could make their views known to the world, and it is now potentially true for everyone.

Almost everyone has a cause, a concern, something they like talking about. If you’ve never been able to find a forum to discuss these issues in, or a place to go to find out the latest on this topic, the web might be the place for you.  If you can’t find a page on a particular topic, make one yourself, register it at the “web catalogues” and watch a community build itself around you.  The greatest service any member of the WorldNet community can render to others is to provide information of this sort, whether it is a political issue, something to do with entertainment or just life in general.  This is after all exactly what we’d been promised the Net would do for us, create an environment within which we could find expression for those selves within us that had never before been exposed
to the world.

[originally published in the Washington Square News]

Ludwig von Mises, “SOCIALISM: An Economic and Sociological analysis”

Ludwig von Mises, “SOCIALISM: An Economic and Sociological analysis“; Yale University Press, New Haven; 1962; translated by J. Kahane; LCCN: 51009080; ISBN: 0913966620 (1981 edition)

 

Prices are the cornerstone of the market, they are the rule by which all agents measure value.  This is admittedly a presumption Mises has made before embarking on his analysis of “Socialism”.  Yet it is not an altogether preposterous assumption.  Mises claims that without the assistance of prices one is at sea in the market; it becomes impossible to effect any rational thought process because such processes presuppose the tools necessary for calculation.  Any rational economic process must have some method with which to rank the various means and ends at our disposal, without such an ordering a rational (i.e. one which permits agents to make informed, rational decisions) economic system is inconceivable.  In the price system Mises finds a highly evolved process which distills the various signals received from all agents in the market and determines the value society ascribes to a particular commodity.

With the assistance of the price system, all actors in the market can make decisions that promote the general good and assist in the satisfaction of the desires of individuals.  Guided by their own self-interest, producers and consumers can make decisions that reconcile their subjective values with those of all other individuals.  Prices provide us with an invaluable table of costs that accurately reflects the desires of all other individuals.  Without prices no agent has accurate and succinct data on which to base her decisions, consequently such a system cannot sustain rational behaviour.  Mises’ fundamental critique of Socialism is that with the abolition of private property it will, with the disappearance of the price system, become impossible to calculate.

Unless we are free to bid for products, based on the value we believe they have, the market is unable to arrive at a price for the product. An alternative system, short of one that has direct access to the minds and hearts of all individuals, will not provide us with information that accurately reflects the desires of society.  This is not of course a claim that goods will have different prices under Socialism, non-monetary costs will substitute to make up for under-priced commodities.  Yet a system that relies on long lines and overflowing warehouses as the only signals on which to revise production decisions is wholly inefficient.  Mises argues that Socialism is exactly such a system.

Since no one under a Socialist state will have access to prices it is entirely reasonable to suppose that inaccurate decisions will be made due to lack of appropriate measures of value.  This not only destroys the much vaunted “rationality” of Socialism, it also suggests that a Socialist economy may be unable to perform as well as a Capitalist market system. If we are aware that redistribution of the present wealth of society will not in itself be sufficient to ensure for each individual the standard of living the Socialists promise, it is difficult to see how an economy that is more prone to “persist in error” [Reuven Brenner, “Labyrinths of Prosperity”] can create enough wealth to enhance our individual positions so dramatically.  Mises assures us that the Socialist system is hardly an “improvement” on the Capitalist structure and as such will produce an inferior result.

Once “the fundamental question whether the socialist order of society promises a higher productivity than Capitalism” has been answered in this manner, little remains of the material rationale for socialism.  The Socialist is then forced to evoke other forms of reasoning to support his agenda.  One of these is an appeal to an acquisitive urge that is present among most of us, and which is sparked when we are presented with the opportunity to “take from the rich what is rightly ours”.  Proponents of such actions, quite apart from the fact that they lack any respect or understanding of rights, assume that they can redistribute in such a manner without affecting the total value of the economy’s product.  Such a position fails to comprehend the subtle relationship between production, distribution and consumption.  Yet this is not surprising when we realize that these claims are forwarded by authoritarians who presume to free us from all cares by replacing the capitalist’s “monopoly” over these three functions with their own.  It is clear that any tampering with either of these processes will radically change the end result of an economic process.

Yet any process that fails to acknowledge the nature of the human agent in the economic sphere and fails to create an incentive structure that forces us to weigh the benefits of consumption and saving can hardly be called economic [pg. 458].  After demonstrating the impotency of the socialist scheme in the economic sphere, Mises has to retaliate to the alleged “materialism” of the bourgeoisie.  At this point however, it is rather futile to argue about the merits of poverty and Mises rests his case after drawing various parallels between socialism and a particular interpretation of Christianity.

There are more problems in the discourse on Socialism than would otherwise be imagined.  One of the points Mises highlights, is the apparent ease with which Socialists (and particularly Marx) use words in different ways, imposing on them a variety of contexts and connotations, till the very logic of the argument has been lost in what Mises calls “word-play”.  This happens, Mises argues, in Marx’s writing where the terms rebellion and society are used at different times to mean different things.  It is not clear whether this is done intentionally, to obscure the argument or whether it is accidental.  In either case, it is clear that such verbal acrobatics simply make it even more difficult to conduct this discourse since one is never completely certain of the arguments advanced by others. These issues become crucial in Hayek, where the very word “Law” is imbibed with a halo that the legislature attempts to acquire by cloaking legislative decisions in an exterior of legality.  A similar conception of language is at work in Hayek’s “The mirage of Social Justice”, where he claims that the term “justice” is abused when employed in referring to an outcome that is not generated by an authority, but which is the outcome of an impersonal process.  Oddly, Mises does not seem to have stressed this mode of thought, and claims that “on this [the relative justice of the outcome produced by these two orders] point science can give no judgement” [pg. 273, also pg 436].  Yet, this has to be reconciled with Mises’ insight that “one is not permitted to ask whether a particular price is justified or not” [pg. 435].  The issue becomes a little clearer when we notice the value Mises has ascribed to the term “science”, and why he would wish to keep away from issues that could “only be evaluated subjectively” [pg. 436], or those that appear to require the application of a particular value structure.

Perhaps what comes out most clearly in this book, is that the structures described in Socialist literature cannot be accepted as they are.  As such these visions of Socialist societies are Utopias (ou + topos, no place), in the sense that they prophecy circumstances that Economic analysis tells us cannot be sustained with the institutions under consideration.  These visions are imaginary places because their structure fails to take into account the nature of the human animal and the way in which we make decisions.  We cannot reconcile Socialist Utopia with our Economic and Sociological knowledge of the nature of human action.

This paper was written for Prof. Kirzner’s class “The Foundations of Capitalism”, during Fall 1995.

The Morals of Markets: An Ethical Exploration

Harry Burrows Acton, “The Morals of Markets: An Ethical Exploration”; in “The Morals of Markets and Related Essays”; ed. Jeremy Shearmur and David Gordon; Liberty Press; 1993; ISBN: 0865971064

We’re millions ‘n’ millions
We’re coming to get you
We’re protected by unions
So don’t let it upset you
Can’t escape the conclusion
It’s probably God’s Will
That civilization
Will grind to a standstill

Frank Zappa “Flakes”

“The Morals of Markets” perhaps demonstrates most conclusively why we must be suspicious of the millions ‘n’ millions who would convince us of the immorality of the market.  Acton begins by outlining popular misconceptions of the role profit plays in the market.  Profits are often derided because it is claimed, that unlike the labourer (who labours for her wages) the entrepreneur does not work to acquire them, and that the desire for profit breeds a selfishness that is destructive.  Acton points out that profits serve a very different function in a market system than do wages.  It is true that profits tend to have no upper and lower limits and unlike wages, are not decided in advance.  This is a result of the nature of profit, which is largely a reward for the foresight of the entrepreneur and his willingness to take on risks which the labourer and bureaucrat are unwilling to.  As for the claim that profits tend to make us selfish, Acton points out that profits are not unlike making good bargain.  Part of the reason for condemning profits for promoting selfishness must stem from a blindness of the manner in which humans make decisions.  If we fail to acknowledge that humans are largely concerned with promoting their own well-being then we may begin to look on profits in this manner.  As is, however, the activities of the businessman have the same moral standing as that of any other actor in the market. As Acton says “To be an unsuccessful businessman is a stupid and inappropriate way of being generous.” [pg. 30]  The same would apply to any person engaged in an exchange.

Yet this disdain of market activity extends beyond a dislike for the institution of profit.  When carried to its final conclusion it must claim that any system which places resources in the hands of the individual will generate an “acquisitive society”.  Further, to assist the individual in resisting the selfish motive it becomes necessary that “society” acquire all productive resources and dispense to “each according to his needs”.  This is a rather poor conception of the garden of Eden, one that seeks to absolve the individual of any responsibility whatsoever.  The fact is that we must reconcile ourselves with exercising our responsibilities in a moral manner, a morality that is  largely determined by our upbringing.  When we begin to forsake these responsibilities, seek to turn them over to the state, our priorities change in such a manner that the decisions we make deal largely with superfluities and our concerns themselves become immoral in a way.  Acton demonstrates this strikingly when speaking of the arrangements for education, housing and health care under the welfare state which relieve the individual from worrying about these responsibilities.  This is a marked shift in perspective from the Victorian sentiment, and most striking when it is noted that those who seek to provide for themselves or their children a better quality of education or health care are condemned as being immoral. What such a structure suggests is that only those quantities of these goods should be consumed by each as have been determined by the state. This, Acton holds, is clearly an imposition of morality on an unwilling people.

Further charges of creating a strife-filled and rivalrous atmosphere have been brought against the capitalist order.  Acton points out that competition is not equivalent to rivalry; in that competitors desire the object of the competition, whereas rivals desire the failure of the opponent.  In fact the market is a cooperative construct since individuals strive to further their own goals by engaging in mutually beneficial exchange.  One cannot indict the businessman for failing to have the well-being of society as her immediate goal, for “we can hardly intend something as remote as the interest of society, we can only aim or try to bring it about.” [pg. 46]   What this suggests is that the interest of society is not as clear as the collectivist wing may make it out to be, and coercing the individual to further one’s own conception of the “interest of society” is a rather suspicious form of justice.  It seems rather confusing that those who would replace the effeminate bourgeois order with a valiant collectivist one, can accuse this structure of being both putschist and violent at the same time.  In fact, as Acton suggests, the collectivist conception of collaboration is incompatible with  the sort of cooperation the market engenders, and is limited to what is commonly called a monopolistic or monolithic organization.  In a sense this undermines the very notion of cooperation since if we have no choice but to cooperate, cooperation is meaningless. In fact, as Acton points out, competition occurs because there is scarcity of resources and the market distributes these to those who value them most.  This makes us responsible for the choices we make, and it is not surprising to see that in a welfare state, the individual is released from responsibility and from any sense of morality at all.  Morality that is imposed from above can hardly be be said to have moral standing.  The essence of a moral person is her ability to exercise her morality in the her independent sphere of activity.  When we have no individual sphere of action left, the very concept of morality is shattered.

It is a frightening thought that what would perhaps conform to the collectivist idea of cooperation is a society where there is no “exercise of originality or ingenuity by someone who has no intention of competing with or outdoing anyone.”  Such a society will be forced to a standstill, not unlike the scenario projected by Kurt Vonnegut Jr. in “Harrison Bergeron”.  A place where no one “should be allowed to buy” products “for himself, but should be allotted his fair share of them under a publicly organised scheme” [pg. 87].  This is not simply a consequence of the urge to impose our conception of what is just on the world, but runs much deeper than that.

Giving an interesting twist to the Mises-Hayek thesis that a planned society would be unable to calculate or function efficiently, Acton suggests that scientific progress is similar to the vicissitudes of the market in that we are unable to predict what effect a particular advance will make.  Since we are unable to say what future technology will be like it is quite futile to make “five year plans”.  Of course states have charted out such grandiose projects and Acton suggests that “those who want to predict and make sure cannot allow private initiative.  They are driven to totalitarianism.” [pg. 155]  The consequence must be a state monopoly over science and the direction of research towards those ends that those in power sympathise with. Such a scenario bodes ill for those members of society who do not ascribe to the current consensus/orthodoxy, and indeed for those purposes that the state relegates to the background.  The experiments in Eastern Europe and China have demonstrated that the ends of the state may not always be synonymous with those of the society and provisions for the well-being of the people can be relegated to the background.

What Lord Acton suggests is that the collectivist urge to control, redistribute and redirect the production of society is largely a yearning for a stability that is not conducive to progress.  Advances can only be made on the ruins of previous constructs.  This is most visible in the phenomenon of profit, which is at once ephemeral and unpredictable, and a market process that operates by “creative destruction”.  We do not know what consequences our decisions will have, we can only make guesses, and an entrpreneur is one who is adept at making such guesses.  The market promotes a plurality of plans that submit themselves to market discipline imposed by the consumer.  Final proof of this may be found by undermining one of Acton’s own analogies.  “The planning prophet regards himself as producing future generations as if they were verses in a poem of his own making” [pg. 149].  Of course, the poet does not know the nature of the poem, Milton’s epic too had unintended consequences.

Free Market Environmentalism

Free Market Environmentalism, Terry L. Anderson & Donald R. Leal;
Pacific Research Institute for Public Policy, 1991; ISBN: 0936488336

“The question is not whether the right solution has been achieved but whether the relevant trade-offs are being considered in the process.” [pg. 5]

Free Market Environmentalism is a book about how best to assure that decision makers take into account the costs and benefits of their decisions and actions.  The question is easily answered when we speak of private property, since the structure of private property is such that each individual has her own sphere of influence within which most costs and benefits are contained.  The owner can claim compensation for any damage done to her property by anyone else and reaps the rewards of good resource-management.  In the environmental sphere, this problem has been complicated by a mode of thought that holds environmental resources are only appropriately handled when responsibility for them is turned over to the state or its agencies.  Since it then becomes unclear as to who owns these resources, and how liabilities and benefits are to be assigned, a problem that is solved inherently by the system of private property we are now forced to find other solutions for.

With communal property comes the tragedy of the commons as each individual attempts to acquire as much of the resource as possible since others are out to do the same.  This inevitably leads to over-utilization of the particular resource and a disincentive to save for the future.  This scenario is applicable today to public fishing grounds and with subsidised water for farmers.  In both cases we see that rational agents decide to use/acquire as much of the resource as they can.  In the first case this is because the first person to harvest a fishing ground has a much lower marginal cost than those who come later.  In the case of water, we see farmers “over-utilizing” water because they do not face the real resource cost of doing so.  In both cases the solution is to attempt to ensure that all relevant costs are taken into consideration before any decision as to resource-utilization is arrived at.  Anderson and Leal suggest that in the case of common fishing grounds the appropriate solution would be to place the water-body in private hands so that both recreational and commercial fishermen have to pay the real costs of their decisions.  The present system (of common fishing rights) leads to an inefficient outcome since there is a tendency to over fish as the resource is publicly owned and no costs are imposed for using it.

The political process is not well adapted to resolve such issues.  Special interest groups are apt to pursue extreme ends and expend resources on lobbying political decision makers to choose one or the other option. Interest groups are generally not willing to consider median solutions which take into account the value of alternative ends for which a resource can be used (presuming such values can be calculated in the absence of a functioning market for them).  What ends up happening, as Anderson and Leal demonstrate, is that interest groups opposed to one another are locked in a zero-sum game.  The result of which must leave one player standing out in the rain.  This is an endemic feature of the political process where “political resource managers make trade-offs in terms of political currencies measured in terms of special interest support; at best this unit of account provides imprecise measures of the subjective values of citizens.” [pg. 16] Unlike the price system, a political resource management mechanism must rely on artificially generated abstractions to approximate the demand for various commodities and services.  The presence of externalities, transaction costs and dispersed, unorganized consumers makes the political market for environmental goods exceptionally imperfect. Anderson and Leal attempt to question the need for a system that is incapable of moving towards an efficient outcome when other alternatives present themselves.

An objection often raised against a market based environmental policy is that such markets do not exist.  The reason such markets do not exist is precisely because they have not been permitted to develop.  As the authors point out, when individuals face incentives to protect and realize the value of their property, tools to facilitate the demarcation and transfer of such property will evolve.  Since owners of private property find it in their self-interest to use means that help them establish control over their property, incentives are created for other agents to develop technology that would fulfill this demand.  Creative solutions are forthcoming when opportunities to market them profitably exist.

The authors are aware that the market solution still relies on the government to define and enforce property rights. [pg. 166] Nor do they claim that their proposals are a perfect solution.  “Property rights are costly to define and enforce, but these costs are a function of the value of the resource in question and the technology” [pg. 167] There is no reason to believe that a system of well-defined property rights will result in an “optimal” use of environmental resources by any or all standards.  That said, there is reason to believe that a structure which permits resource owners (not far-removed proxies) to make decisions based on their own values and market conditions would result in a more efficient use of resources than a system which does not have the benefit of the information conveyed by prices and knowledge of particular circumstances. It is by no means clear that politically appointed managers will be impartial or disinterested agents of society.  In fact, there is reason to believe that they would be very interested in promoting certain evaluations of the state of environmental resources, and the general concern for their future, if only to secure large, discretionary budgets for their departments.  At the other end of the spectrum, there is the concern that government appointed managers may be too disinterested, to the extent of being blind to theft of resources under their very noses.

Since we are dealing with issues that are still being debated in scientific circles, it is doubly difficult to judge, post-facto, whether the correct decision was made by an agent of the government or whether all relevant details were taken into consideration. Unless decision makers are faced with the consequences of their actions, i.e. only when they receive “negative feedback”, will they be prompted to take into consideration the effects of their actions.  Making sure that resource managers are also resource owners has been found to be the most effective way to promote the responsible use of all sorts of resources.  In the environmental sphere this can only be accomplished when specific resources are owned by individual entities.

That government agencies are not always the best executors of “society’s wishes” has been demonstrated a number of times, and is in part caused by the nature of the political process.  That individuals or organizations are in a better position to exercise their property rights over resources, and put them to their most valued uses is also quite clear.  What the authors have shown is that common objections to privatizing natural resources are often based on unsound reasoning and a willing ignorance of history.  The position advanced by Anderson and Leal deserves to be examined more closely, and it is clear that market solutions are being applied in a variety of environments with remarkable success.  Perhaps the most telling ratification of this stance is made by conservation groups that decide to put their lands to a variety of uses. Conservation groups are willing to evaluate the various trade-offs to be made between preserving environmental conditions in the region and the broader scope for conservation afforded by putting environmental resources to commercial use when they own the resource in question.  They are less amenable to compromise when the resource is publicly owned.  The same applies to commercial operators harnessing the recreational value of a particular natural resource.